USD/CNH sellers attack $6.3750 against all odds, focus on US ADP, FOMC Minutes

• USD/CNH snaps two-day uptrend, pokes intraday low at the latest.
• Chinese authorities are seen implementing more drastic current control measures.
• Evergrande seeks to delay onshore bond payment during this weekend’s meeting.
• Market sentiment remains sluggish, yields retreat, stock futures ease ahead of the US catalysts.

USD/CNH remains on the back foot, extending pullback from a two-week high to $6.3745 during early Wednesday morning in Europe.

In doing so, the offshore Chinese currency (CNH) pair ignores recent concerns suggesting the policymakers’ readiness to restrict the domestic currency’s gains. “If USD/CNY shorts continue to ignore the shrinking gap between Treasury yields and Chinese sovereign bonds, the PBOC may also lower rates again, which would serve Beijing's interests in propping up the flagging economy,” said Reuters while citing Chinese outlet.

On the same line were chatters surrounding the troubled real-estate firmer Evergrande. Reuters mentions, “China Evergrande Group will seek a six-month delay in the redemption and coupon payments of a 4.5 billion yuan ($156.92 million) bond in a meeting with bondholders this weekend, underscoring the pressure on the debt-laden property developer.”

Elsewhere, mixed signals concerning the South African covid variant, namely Omicron, as well as the Fed’s next moves challenge the market moves ahead of awaiting the US ADP Employment Change for December, expected 400K versus 534K prior, as well as FOMC Minutes. While portraying the mood, US Treasury yields drop from a six-week high whereas stocks in Asia-Pacific grind lower, with major losses in China and Hong Kong.

The upbeat scientific studies and comments from the World Health Organization (WHO) Incident Manager Abdi Mahamud tamed fears concerning the South African covid variant, namely Omicron. However, the faster spread of the virus variant and news of another strain being found in France, having more pace in spreading than Omicron, challenge the market’s optimism of overcoming the pandemic.

On a different page, mixed US data and a pause in the US Treasury yields, as well as receding inflation expectations, also challenge the USD/CNH traders. It’s worth noting that Minneapolis Fed President and 2022 voting FOMC member Neil Kashkari signaled the need for two rate hikes but couldn’t match the money market bets for three such actions in 2022, which in turn probed gold buyers the previous day.

Moving on, likely actions by the Chinese authorities and Evergrande woes may recall the USD/CNH bulls but expected weakness in the US ADP figures could delay the run-up. Even so, the hawkish tone of the policymakers in the FOMC Minutes will be enough to recall the pair bears.

Technical analysis

Unless crossing a two-month-old resistance line, around $6.3870, USD/CNH remains vulnerable to revisit the multi-day bottom marked in 2021 surrounding $6.3300.